For Karl Marx, surplus value is critical to the expansion of capital. In the money circuit M – C – M ’, capitalists purchase commodities (C ) with money (M ) in order to sell these commodities for more than their initial outlay (M ’). Surplus value is the difference M ’ – M, the profit that the capitalist makes at the end of the money circuit. Instead of hoarding this profit, as would a miser, the capitalist reinvests it in a new, enhanced circuit of money. The conclusion of each circuit, with more value produced, provides the starting point for the expansion of capital in each subsequent circuit.
The problem that Marx (1867) sets himself in Capital, volume 1, is how capitalists can sell for more than they buy. Are some commodities sold for more than they cost? The answer is yes and no. Marx assumes that capitalists pay for the full cost of inputs such as raw materials, which are used in the production process. The yarn that is used by the weaver is paid for at full cost. However, there is one commodity that does beget more value than its cost: labor power.
On the one hand labor power, which is sold by workers to capitalists, has a capacity to produce output. The capitalist makes use of a worker’s labor power, say for eight hours per day, adding eight hours of value to the commodity produced. On the other hand it has a cost, which for the capitalist is the outlay of wages that enable workers, and their families, to subsist. Crucially, the value of this labor power is less than the value of the worker’s output. The worker may have to work only four hours per day to produce value that is equivalent to the goods required for subsistence. But, exercising control over the labor process, the capitalist requires an eight-hour day: the worker is robbed of four hours of labor power that is extracted by the capitalist as surplus value. For Marx, surplus value entails the exploitation of workers by the capitalist class.
From a political point of view, the theory of surplus value has been an ideological weapon for exposing the injustice of the capitalist production process. The capitalist seeks to extend the working day to extract what Marx refers to as absolute surplus value (a reduction in the value of labor power would increase relative surplus value). To this day, in capitalist economies workers suffer adverse health effects from excessive hours of work. The Japanese have their own word for it: karoshi —death from overwork. In response to this problem, the European Union has imposed a forty-eight-hour-maximum workweek. Marx’s theory of surplus value provides the basis for arguing for a reduction in working hours. As Philp (2005) has shown, however, the surplus-value approach does not always have to be associated with a sharpening of the class struggle. The reduction in hours can benefit capitalists if less unemployment reduces the burden of taxation.
In making the argument that workers are exploited, the problem is that on the surface, workers seem to be paid a wage for the full working day. Before capitalism, the extraction of a surplus was much more obvious. The feudal peasant gave one day’s worth of corn to the landlord, and another to the priest. Under capitalism, however, surplus value is located in the circulation of money, where workers freely exchange their labor power for wages and where capitalists seem to make profits as a natural reward for risking their money in the spirit of enterprise.
Key to the analytical power of surplus value is Marx’s assumption, maintained in the first two volumes of Capital, that commodities are sold at their values. The money value of consumption goods purchased by workers, using money wages, is the same as the labor embodied in those commodities; the money value of the output produced by workers is the same as the labor embodied in that output. Hence there is an assumed equivalence between surplus value, measured in units of labor time, and money profits, located in the circulation of money.
Critics of Marx, however, have argued that in Capital, volume 3, where he allows prices to diverge from values, the equivalence between surplus value and profits is not successfully maintained. Marx develops a procedure for transforming values into prices that is generally considered to be incomplete. Whereas the outputs of each branch of production are transformed from values to prices, the transformation is not carried out for inputs. Inspired by Piero Sraffa, and the earlier input-output approach of Wassily Leontief, Marx’s critics have shown that when the values of inputs are transformed into prices the consequences are severe. Total money profits are different from total surplus value, there being no reason why the category of embodied labor value should be at all useful. Since capitalists only care about money profits, why should Marxists use the irrelevant category of surplus value?
In recent years, the main reaction to this Sraffian critique of Marx has been to downplay the role of value as embodied labor time. Goods can only have value if they are sold in the marketplace, so what matters is the form that value takes in exchange—the value-form of commodities. Proponents of the value-form approach argue that in Capital, volume 1, Marx uses both labor embodied and value-form definitions of the value of labor power. In the “new solution” to the transformation problem, the value-form definition is preferred, with the share of wages in money income interpreted to be the value of labor power. In this approach, the equivalence between money profits and surplus value is established, even when both inputs and outputs are transformed from value to prices. A number of different variants to the value-form approach have emerged, with some dispute over the extent to which labor-embodied categories are replaced across all commodities, not just labor power, and whether the analysis should be recast in a dynamic or non-equilibrium setting (Foley 2000).
A problematic issue with the value-form approach is that by abandoning labor-embodied values, Marx’s approach is drained of all content. Is a real exploration beneath the surface offered by interpreting money categories as a form of value? There are two ways in which the value-form approach can provide a useful basis for future research.
First, by emphasizing the importance of money in Marx’s economics, it provides an alternative to neoclassical general equilibrium theory, which has limited relevance to a barter-exchange economy. The value-form approach can be used to model a genuinely capitalist system with credit money providing the vehicle for capital expansion (see Trigg 2006). The role of credit in the recent economic boom in the United States, for example, has been related to the extraction of surplus value in China. With no trade-union rights and high productivity, there is a structural relationship between the production of vast quantities of surplus value by the emerging Chinese proletariat and the credit boom associated with China’s purchase of U.S. financial assets.
Second, the value-form approach provides a possible starting point for Marxian empirical research. By working with money categories, Marxists are able to interpret national accounts data from a value-theoretic perspective. The secular fall of the rate of profit since the 1960s, which has been observed throughout the developed economies, can be empirically examined in the light of Marx’s theory of the falling rate of profit. In contrast to neoclassical economics, in which profits are assumed to be zero under perfect competition, the surplus-value approach offers a systematic analysis of how the rate of profit is determined.
SEE ALSO Exchange Value; Labor Theory of Value; Value
Foley, Duncan K. 2000. Recent Developments in the Labour Theory of Value. Review of Radical Political Economics 32 (1): 1–39.
Leontief, Wassily W., et al. 1953. Studies in the Structure of the American Economy. New York: Oxford University Press.
Marx, Karl.  1976. Capital. Vol. 1. London: Penguin.
Philp, Bruce. 2005. Reduction, Rationality, and Game Theory in Marxian Economics. London: Routledge.
Sraffa, Piero. 1960. Production of Commodities by Means of Commodities. Cambridge: Cambridge University Press.
Trigg, Andrew B. 2006. Marxian Reproduction Schema: Money and Aggregate Demand in a Capitalist Economy. London: Routledge.
Andrew B. Trigg
"Surplus Value." International Encyclopedia of the Social Sciences. . Encyclopedia.com. (October 17, 2017). http://www.encyclopedia.com/social-sciences/applied-and-social-sciences-magazines/surplus-value
"Surplus Value." International Encyclopedia of the Social Sciences. . Retrieved October 17, 2017 from Encyclopedia.com: http://www.encyclopedia.com/social-sciences/applied-and-social-sciences-magazines/surplus-value
"surplus value." A Dictionary of Sociology. . Encyclopedia.com. (October 17, 2017). http://www.encyclopedia.com/social-sciences/dictionaries-thesauruses-pictures-and-press-releases/surplus-value
"surplus value." A Dictionary of Sociology. . Retrieved October 17, 2017 from Encyclopedia.com: http://www.encyclopedia.com/social-sciences/dictionaries-thesauruses-pictures-and-press-releases/surplus-value